The development and emergence of the hematopoietic stem cell involves a series of tightly regulated molecular events that are not well characterized. The hematopoietically expressed homeobox (Hhex) gene, a member of the homeobox gene family, is an essential regulator of embryogenesis and hematopoietic progenitor development. To investigate the role of Hhex in hematopoiesis we adapted a murine embryonic stem (ES) cell coculture system, in which ES cells can differentiate into CD41(+) and CD45(+) hematopoietic progenitors in vitro. Our results show that in addition to delayed hemangioblast development, Hhex(-/-) ES-derived progeny accumulate as CD41(+) and CD41(+)c-kit(+) cells, or the earliest definitive hematopoietic progenitors. In addition, Hhex(-/-) ES-derived progeny display a significantly reduced ability to develop into mature CD45(+) hematopoietic cells. The observed reduction in hematopoietic maturation was accompanied by reduced proliferation, because Hhex(-/-) CD41(+)CD45(-)c-kit(+) hematopoietic progenitors accumulated in the G(2) phase of the cell cycle. Thus, Hhex is a critical regulator of hematopoietic development and is necessary for the maturation and proliferation of the earliest definitive hematopoietic progenitors.